China’s post-Covid rebound?

If you dig into the figures a little you discover that this demand owed little to what are normally the two biggest consumers, China and India. The WGC says gold jewellery demand in China fell in 2022 year-on-year by 14% (101 tonnes) to 598.3 tonnes, while India’s dropped by 2% to 600.4 tonnes. This was the first time since 2011 that India’s gold jewellery demand outstripped China’s.

This should not come as a shock. After all, China in 2022 was still intent on its ‘zero-Covid’ policy, with sporadic lockdowns breaking out across the country. That policy ended in December after serious protests; but it clearly slowed consumer spending in China for most of the year, and significantly reduced the country’s economic growth, to just 3%. Now that Chinese consumers no longer have the threat of lockdowns hanging over them, will they go out and spend on gold as before?

That will depend on several different factors, not least economic growth. The International Monetary Fund (IMF) said in January that it expects a significant economic rebound this year; it forecast China’s economy will grow by 5.2% in 2023, and that together with India it will account for “half of global growth”. The Chinese authorities set an even lower target, of just 5%, possibly to ensure they could hit it.

But the IMF has become “much gloomier on the longer-term growth potential of China, having marked down forecasts for 2024-28 by more than a percentage point, decelerating to just 3.4% by 2028”. This slowdown that is shortly expected – if it comes to pass – would inevitably negatively impact many sectors, including gold demand. Gone are the heady days of the 1990s-early 2000s, when China regularly saw economic growth of around 10%.

The slowing Chinese economy is partly a consequence of demographics. One implication of China’s slowing birth rate – the population last year fell for the first time in 60 years – is that the state will face serious financial pressures long before mid-century.

China’s National Health Commission expects the cohort of people aged 60 and over to rise from 280 million to more than 400 million by 2035 — equal to the entire current populations of Britain and the United States combined. At present, each retiree is supported by the contributions of five workers. The ratio is half what it was a decade ago and is trending towards 4-to-1 in 2030 and 2-to-1 in 2050.

China is a major gold producing country, averaging 245 tonnes a year during 1991-2022. An unreported quantity of this annually goes into the country’s central bank reserves, which officially now stand at more than 2,050 tonnes. That figure is reckoned by many independent sources to be seriously under-reported.

Chinese consumers may take a while to return to their previous gold-buying habits – and perhaps will struggle in a slowing economy to return to previous levels – but the Chinese state is likely to remain a strong support for gold demand; it seems intent on challenging the US dollar’s status as the world’s reserve currency and appears to be constructing a coalition of emerging nations to that end. For which purpose more gold in its reserves could prove useful.